FIVE RECOMMENDATIONS FOR NONPROFITS IN A RECESSION
From the Nonprofit Finance Fund
1. Nonprofits heading into recession need to avoid "strong, silent
behavior" and sustained spending, which has been a hallmark of the industry
for more than a decade, and continues to make nonprofits weaker, not
stronger. Miller explained: "We are entering a period of financial
crisis, and we can't afford to 'fake it until we make it.' This heroic type
of behavior does no one any good in the long run. Nonprofits need to share
worries with boards and funders, and enlist their support in getting ready
for a possible recession. Organizations need to try to get by on decreased
revenue and programmatic spending for a year or two in light of new
financial indicators, before moving forward with challenging expenses."
2. Nonprofits should engage with board members and funders in
contingency planning on what is likely to happen to clients and funders
during a recession. Clara Miller said: "The end clients are especially
important, and face the greatest risk: many of the populations served by
nonprofits are fragile, needy people, whose need increases in times of
financial stress. The goal of surviving a recession or economic recession is
not to stay afloat for the sake of staying in business, but rather to make
sure you're around to keep serving the public, particularly in times of
increased demand for services. It's important to get board members and
funders to go public with that message -- that the organization's survival
is important because of the clients it serves" (WAB NOTE: and the value it
provides to its community).
3. Nonprofits should avoid large investments in fixed assets and
infrastructure (i.e., a building purchase, new hires or expansion of
services), and if change (growth or retrenchment) is likely, then nonprofits
need to work with funders and board to build a cushion to allow flexibility
and course corrections. Miller explained: "As economist Peter Bernstein
put it, 'Risk means not having cash when you need it.' And that is
particularly true for nonprofits, which often have liquidity problems in the
best of times. Liquidity becomes even more of an issue during a downturn,
when there is a temptation to maintain or increase services, and hence
expenses, even if revenue is declining."
4. Nonprofits need to get a firm handle now on their revenue patterns.
Clara Miller said: "Organizations can examine revenue cycles to see if
they're contra-economy or not. In some cases, the revenues of nonprofits
actually rise during a recession. If that's true, nonprofits can build
growth funding to allow rapid expansion to meet needs. If the opposite is
true, nonprofits can take actions in step with cushion-developing
approaches."
5. If they offer services (e.g., job retraining, food kitchens and
housing services) that will lessen the negative impact of an economic
downturn, nonprofits should approach government funders more aggressively.
Clara Miller noted: "Nonprofits should propose revenue-neutral changes if
the government can assist it with expansion during a recession or improving
its practice within the context its mission. Nonprofits can also band
together around quality-adequate pricing, and consider shared platform
investigations, using already-scaled ones available." (WAB NOTE: for arts
groups, essentially sharing administrative and space costs when appropriate)
To learn more:
http://www.smartbrief.com/news/aaaa/industryPR-detail.jsp?id=B1E2DB5B-A7A5-4DFF-A31D-7EDE904C4B0F
Updated:
October 30, 2008
Fax: 608/267-0380